November ISM-MF Index, UI Claims, October Construction Spending

The ISM Manufacturing Index for November increased to 53.2 percent, showing improving conditions.

Initial Claims for Unemployment Insurance increased by 17,000, to 268,000 for the week ending Nov. 26.

Construction spending increased by 0.5 percent in October.

The ISM Manufacturing Index for November increased from a mildly positive 51.9 in October to a more positive 53.2 percent. Out of 18 reporting industries, 11 reported growth in November, including petroleum and coal products, paper products and computers and electronic products. Six industries reported contraction in November, including printing, wood products and apparel. Anecdotal comments were positive, with many industries indicating their expectations for strong demand into 2017. Seven out of ten sub-indexes were positive for the month, including new orders, production and employment. The prices sub-index was positive and that will catch the Fed’s attention. This is a solid report for the U.S. manufacturing sector which was sagging at the end of last year. Good recent economic data, combined with the post-election bump in U.S. stock prices, will make the Fed’s decision to raise the fed funds rates at the upcoming Federal Open Market Committee on December 13-14, an easy one. The fed funds futures market currently places the odds of a 25-basis-point increase in the fed funds rate range on December 14 at almost 99 percent. At this point it would come as a shock to financial markets if the Fed did not raise the fed funds rate on December 14.

Labor market data from November also looks good. Initial claims for unemployment insurance increased by 17,000, more than expected, to hit a still-low 268,000 for the week ending November 26. The Thanksgiving holiday may have impacted seasonal adjustment factors. Continuing claims for the week ending November 19 increased by 38,000 to hit a still-low 2,081,000. Yesterday, the ADP Employment Report for November showed a stronger-than-expected increase of 216,000 private sector jobs for November. This would be consistent with about 226,000 total nonfarm jobs. Tomorrow morning we will get the official employment data for November from the Bureau of Labor Statistics.

Construction spending for October increased by 0.5 percent, boosted by a 2.8 percent increase in public projects. Private nonresidential construction spending dipped by 2.1 percent. Private residential construction spending increased by 1.6 percent, consistent with the strong gain in housing starts for the month.

Market Reaction: U.S. equity markets opened with gains, but then went south. The yield on 10-Year Treasury bonds is up to 2.45 percent. NYMEX crude oil is up to $51.58/barrel. Natural gas futures up to $3.48/mmbtu.

For a PDF version of this Comerica Economic Alert click here:ism-mf-12-01-16.